Water always gets quite a bit of attention around Gumshoe Headquarters — it is a perennial topic of investor interest, and we see waves of excitement about water stocks rise and fall with some regularity.
And it’s not hard to see why — fresh, clean water is in short supply in much of the world (though not so much in financial capitals like New York, which might cause good themes to be overlooked), and the infrastructure to clean, move and deliver water to end markets is either extremely deficient or nonexistent in much of the developing world, and horrifically old and in need of revitalization in the developed world, particularly here in the US where urban infrastructure is often neglected (and, as you might guess, the water pipelines and water infrastructure are often the oldest part of any city’s hidden backbone — the initial buildout of water distribution and treatment preceded the buildout of gas or electricity distribution, especially in many older cities, and a lot of old pipes are still in use). So if you add to that story of required investment and increased need (the population isn’t really declining anywhere, and people aren’t consuming much less water), and then tack on the most visible water controversy in the US these days — the demand for fracking water for oil and gas shale, and the disposal of that water — well, you can see that the story does nothing but get more and more appealing as time passes: The people who can clean and transport water effectively, and who can build or rebuild the required infrastructure for water, should be getting rich.
Which doesn’t necessarily mean that the “story” works — it might, of course, and it certainly does work for some companies, but there are lots of “big picture” driven ideas like this that don’t work for every single company (water company, in this case) that you come up with. We’ve seen some big successes that revolve around the use of water for fracking, for example, like Poseidon Concepts, but we’ve also seen several teaser picks in this area collapse, like Gasfrac (not using water) and Heckmann (trucking water). Stories don’t guarantee successful companies, even if the basic gist of the story rings true, and they certainly don’t guarantee profitable stock trades.
But that said, having a good thematic backdrop for your investment helps — ...